Snap is
about to face the biggest reckoning of its short history as a
public company.

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On Saturday, the company's post-initial-public-offering stock
lockup is set to expire, allowing early investors, employees, and
insiders to sell shares for the first time.

It couldn't come at a worse time for Snap, which has plunged by
19% since pricing its IPO on March 1. The company's stock has
fallen more than 16% this month alone, and it was down 1.7% as of
10:13 a.m. ET on Friday.

"We see further trouble ahead for investors in Snap as employee
lock-ups expire," the research provider Management CV wrote in a note
to clients. Company executives, it said, "are facing slowing
growth rates and we think the expiration of insider's lock-up
provisions from the IPO may collide with investor interests."

Though the company is struggling, there's one group that will
welcome the lockup expiration with open arms: those traders
betting against its stock price. The likely influx of new shares
hitting the market will make it cheaper to borrow the stock to
short.

While borrowing fees of 50% to 60% have made shorting Snap
prohibitively expensive to most investors, that cost will shrink
to about 5%, according to data compiled by the financial
analytics firm S3
Partners.

For context around just how expensive Snap shorts have become,
short sellers were paying a whopping $1.7 million a day in
borrowing costs to pay for their bearish bets earlier this week.
That meant Snap shares had to fall by 5% every month just to
cover financing costs, according to S3 data.

That's all about to change.

Here's a handy guide for tracking how many shares will be freed
up from post-IPO lockup constraints over the next few weeks,
courtesy of S3:

July 29 - 400 million shares from early
investors
August 14 - 182 million shares from employees
August 14 - 600 million shares from directors,
founders, insiders
August 29 - 20 million shares from early
investors

It's likely that early investors will end up selling at least
some of their shares, S3 says. The firm estimates that 10% to 30%
of their shares will land in lending accounts.

As for the stock owned by employees, directors, and insiders?
Don't necessarily count on it hitting the market anytime soon.

But that shouldn't matter for short sellers in the immediate
term. Their borrowing costs are almost certain to come back down
to previous levels, at which point it'd be open season once
again.